Journal of Innovation & Knowledge 8 (2023) 100420

Journal of Innovation
& Knowledge
ht t p s: // w w w . j our na ls .e l se vi e r .c om /j ou r na l -o f - in no va t i on -a n d- kn owl e dg e

Retail returns management strategy: An alignment perspective

Stefan Karlssona, Pejvak Oghazib,c,*, Daniel Hellstroma, Pankaj C. Pateld,
Christina Papadopouloue, Klas Hjorta
a
Packaging Logistics Division, Department of Design Sciences, Lund University, Lund, Sweden
b
School of Social Sciences, Sodertorn University, Stockholm, Sweden
c
Hanken School of Economics, Helsinki, Finland
d
Villanova School of Business, Villanova University, 800 E. Lancaster Avenue, Villanova, PA 19085, USA
e
University of Leeds, United Kingdom

A R T I C L E I N F O A B S T R A C T

Article History: This research aims to shed light on the formulation of returns management strategies and to identify key
Received 18 January 2023 returns management components in developing more effective returns management strategies. Anchored in
Accepted 28 July 2023 supply chain orientation and supply chain alignment research, we use a multiple confirmatory case study of
Available online 4 August 2023
six retailers operating in online commerce. Interviews with fifteen managers provided the primary empirical
data source for the study. The results confirm the presence of alignment in establishing effective strategies
Keywords:
for managing product returns and suggest a return policy. The findings provide detailed insights into seven
Reverse logistics
existing misalignments that curb the strength of alignment. These serve as strategic elements for managers
Retail
Consumer returns
to consider in formulating returns management strategies and goals. The results may assist retail and supply
Gatekeeping chain professionals in their quest to develop effective strategies for managing product returns. Research on
Strategy returns management strategy is scarce. This study offers a conceptual framework and provides new empiri-
Supply chain orientation cal insights into returns management strategy formulation and, in particular, potential misalignments.
© 2023 The Author(s). Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge.
JEL: This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
M10
M29
M19

Introduction Given that e-commerce returns represent about a quarter of total

Online sales, a critical but challenging growth driver for retailers,
roughly represent 25% of retail sales in the US (NRF, 2022). As sales
figures continue to rise, especially during and after the COVID-19
pandemic, return rates follow the same pattern. During 2020, $428bn
of goods were returned by US consumers (NRF & Appriss Retail,
2021) and, in 2023, online returns are expected to reach $7 bn (Ambi-
kar et al., 2021). While retail return rates have grown from nearly 11%
to 17% over the last two years, e-commerce return rates are reported
to be at an all-time high of 25% (Ader et al., 2022). In 2020, returns
were estimated to generate 16 million metric tons of CO2 emission
and 5.8 billion pounds of waste (Optoro, 2020). Furthermore, the cost
to the internet retailer of handling the return of a 50-dollar item was
estimated at $33. The impact of consumer returns on industry and
society are significant.
* Corresponding author.
E-mail addresses: stefan.karlsson@plog.lth.se (S. Karlsson), pejvak.oghazi@sh.se
(P. Oghazi), daniel.hellstrom@plog.lth.se (D. Hellstrom), pankaj.patel@villanova.edu
(P.C. Patel), C.papadopoulou@leeds.ac.uk (C. Papadopoulou), klas.hjort@plog.lth.se
(K. Hjort).
return rates, global retail CEOs point out that product returns are the
most expensive aspect of omnichannel fulfilment (PwC, 2015).
Returns impose a substantial economic cost that is borne entirely by
retailers, not only from the direct result of lost sales but also from
additional costs of shipping, handling, restocking, and repackaging
products (Guide et al., 2006). Customers expect lenient return policies
and a hassle-free return process experience as the price of their con-
tinuing patronage of, and future spending at, that retailer. Yet con-
sumers may experience disquiet and express increased concern about
the environmental impact of retailers’ return practices. These trends
suggest the need for retailers to align competing customer preferen-
ces into a coherent whole and to understand fully the strategic impli-
cations of managing product returns. In this context, the alignment of
the returns management process, policy, and overall business goals
are essential to ensure a high level of business performance.
Given its high relevance, research on product returns and returns
management has gained a prominent role in the literature on
logistics and supply chain management (SCM) − for a review, see
Abdulla et al. (2019) and Ambilkar et al. (2022). Despite the many
contributions in this area, literature that maintains an explicit

https://doi.org/10.1016/j.jik.2023.100420
2444-569X/© 2023 The Author(s). Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge. This is an open access article under the CC BY license
(http://creativecommons.org/licenses/by/4.0/)
S. Karlsson, P. Oghazi, D. Hellstrom et al.
strategic focus is limited. Dapiran and Kam (2017) specifically call for
an investigation of strategies to manage product returns and to fur-
ther explore the existing trade-offs between customer returns in
terms of operating costs and returns as an essential element of cus-
tomer service. More recently, Ren et al. (2021) examined strategic
choices relating to return insurance, and Chen et al. (2019) studied
employee development as an antecedent to effective returns man-
agement. Earlier studies by Mollenkopf et al. (2007, 2011) suggest
that functional integration at the marketing and operations interfaces
would enable firms to better meet customer return requirements.
Moreover, Abdulla et al. (2019) concluded that there is a lack of
research on the decision making relating to returns policy and the
policy’s impact on the returns process.
While the existing literature presents many insights that inform
and shape the returns management process, we still do not fully
understand the strategic links between key components in the return
process and the route to a successful returns management strategy.
We first explore this issue by conceptualizing adequate returns man-
agement strategies. Drawing on the supply chain orientation (SCO)
literature, we propose that firms seek to achieve a level of alignment
between the return process, the return policy, and the business goal
designed to manage effective product return strategies. Then, using
qualitative data from internet retailers, we explore strategy formula-
tions on the presence of alignment and misalignment. The research
corroborates the existence of misalignments in returns management
and examines the interdependencies amongst the components
involved and their potential business impact.
This research seeks to contribute in the following ways. Specifi-
cally, the results extend the previous work that addresses process
alignment in returns management (Dapiran & Kam, 2017; Larsen et
al., 2018; Mollenkopf et al., 2007) by identifying and categorizing
potential misalignments. Our study on returns management strategy
formulation represents a previously unexplored perspective and
adds, both theoretically and empirically, to the many aspects of the
supply chain management process that are of growing importance.
Equally, the findings inform retailers, as part of their strategy devel-
opment, how best to manage their consumer returns. Finally, we add
to previous studies that address the relatively limited research
stream on SCO (Esper et al., 2010) through our extended investiga-
tion of returns management.
The remainder of the paper is organized as follows. The next
section introduces the theoretical background related to managing
product returns and presents a conceptual framework. This is followed
by a section that describes the research methodology and the empiri-
cal findings, and discusses misalignments in establishing effective
returns management strategies. We conclude by addressing the
research’s implications and by offering further research suggestions.
Theoretical background and research framework
This section reviews three streams of literature, The first concerns
the returns management process and returns policy as key interde-
pendent components in managing product returns. The second
stream presents the SCO and alignment literature as a strategic view-
point on developing strategies for supply chain processes. The third
stream discusses returns management strategy alignment as a theo-
retical grounding for a conceptual framework.
Returns management and policy
Returns management deals with the reverse flow of goods, orga-
nizational design, and workflow within and between the business
functions that handle returned items in several firms. From a pro-
cess-orientated viewpoint, Rogers et al. (2002) define returns man-
agement as a core supply chain process in which all activities
associated with product returns (i.e., reverse logistics, gatekeeping,
2
Journal of Innovation & Knowledge 8 (2023) 100420
and restocking) are organized. Research in reverse logistics has domi-
nated scholarly interest in the logistics and SCM fields. Rogers and
Tibben-Lembke (1999) focus on the efficiency of logistics activities,
stating that reverse logistics encompass all reverse material and
information flows. To define reverse logistics and its components,
Stock and Mulki (2009) identified several operational steps in reverse
logistics: providing authorization and labelling; receiving and
unloading; processing the data entry and issuing customer credits;
inspecting and routing to the defined destination; and disposition.
Gatekeeping is a key activity when managing the flow of returns.
It concerns reviewing information on the returned items and the rea-
sons for their return to decide how best to capture value in the
returned goods. Rightly used, the activity should guarantee that
unwanted returns do not enter the returns flow. For example, these
returns could fall outside the stipulated return time. Unwanted
returns can also relate to circumstances where the handling and
processing costs are higher than the value that can be captured. In e-
retail practice, there is a clear difference between consumer gate-
keeping and warehouse gatekeeping. Gatekeeping at the warehouse
is often paper based using a pre-printed return note whereas the
decision to capture the value of the returned items occurs at the proc-
essing stage, which may be too late to ensure efficient handling of the
return. Consumer gatekeeping allows for an earlier decision point,
providing an enhanced opportunity to prevent undesirable returns
from entering the return flow.
Reverse logistics and gatekeeping activities focus on the actual
physical implementation of the reverse flow of goods, while avoid-
ance focuses on lowering the flow of returns. There are numerous ini-
tiatives and practices to minimize the likelihood of product returns in
the first place (Bernon et al., 2016). Some examples are improved
product quality, precise information and detailed images to ensure
that the products correspond to customer expectations, and correct
product delivery and on time. The importance and range of avoidance
initiatives serve to emphasize returns management as a supply chain
process that goes beyond a single business function, such as logistics
and a firm’s marketing department. To strengthen returns manage-
ment as a supply chain process, Hjort et al. (2019) empirically identi-
fied a fifth interlinked activity for e-retailers to manage product
returns: service. Service can take different forms, such as providing
speedy reimbursement, and convenient and flexible procedures for
collecting returns. However, it is more important that returns are
viewed as a service offer or a service recovery and, therefore, need to
be managed accordingly. As a service offer, returns are an integral
part of the customer experience from the beginning to the end. As a
service recovery, returns are the unintended consequence of cus-
tomer dissatisfaction. The need for technical support is reinforced by
Albors-Garrigos (2020) who concludes that technology can serve as a
supporting tool in communicating with consumers.
To manage product returns, it is necessary to go beyond the return
process to include the returns policy. For internet retailers, the
returns policy constitutes the interface with the customers and com-
municates the rules and mutual agreement between them. Janakira-
man et al. (2016) defined the returns policy in terms of the time
frame within which the customer can return goods, at what cost, and
whether the product can be returned. If not, how will the product be
replaced or how will the customer be compensated? Research shows
that the return policy impacts the customer’s purchase intention and
return behaviour (Abdulla et al., 2022; Bechwati & Siegal, 2005; Lantz
& Hjort, 2013; Mollenkopf et al., 2007) and, thus, bottom line sales
and profitability. In a recent study, Son et al. (2019) showed that
return amounts had no negative impact on order amounts, indicating
that high returns do not necessarily mean lower profitability. The
return policy can impact consumers’ willingness to buy since they
can choose other vendors with more generous return policies.
Research over the years has shown that a generous policy signals
quality and confidence (Bonifield et al., 2010; Rokonuzzaman et al.,
S. Karlsson, P. Oghazi, D. Hellstrom et al.
2021; Shao et al., 2021). By applying a lenient return policy, e-
retailers can reduce the customers’ risk: the customers will opt for
the product offering with return shipping insurance, which they will
view as a sign of quality and credibility (Shao et al., 2013). Moreover,
a generous return policy can lead to a positive purchase decision and,
rightly used, can result in increased demand (Oghazi et al., 2018).
Wood (2001) found that a more lenient return policy increases the
probability of the customer placing an order. An experimental study
by Kim and Wansink (2012) showed that a more lenient return policy
makes the customer evaluate the products more favourably. More
recently, Abdulla et al. (2022) found that money was the most effec-
tive lever, with exchange as the second most important, when con-
sumers make a purchase decision. Existing research shows that
return policy decisions clearly impact customer buying and return
behaviours and, thus, a firm’s back-end return process of handling
the reverse flow of products is a matter of considerable consequence.
Supply chain orientation as a strategic lens
The concept of SCO was developed during the late 1990s and
reflected in the SCM literature. As a research topic, though, SCO has
remained largely unexamined (Dhaigude et al., 2015) despite the
growing body of SCM research. In the salient work by Mentzer et al.
(2001), SCM is defined as: “the systemic, strategic coordination of the
traditional business functions within a particular company and across
businesses within the supply chain, for the purposes of improving the
long-term performance of the individual companies and the supply
chain as a whole” (p.18), whilst SCO is defined as: “the recognition by
an organisation of the systemic, strategic implications of the activities
and processes involved in managing the various flows in a supply
chain” (p.11). This means that SCM focuses on managing interactions
between the supply chain members while SCO describes and visual-
izes a firm’s understanding of its SCM strategy. This suggests that an
organization must understand and agree on an SCO before it can cre-
ate an effective strategy for its supply chain processes (Min & Ment-
zer, 2004). In other words, SCO represents a shared value and belief
system that helps a firm to understand how it should strategically
manage its supply chain, and it embodies the behavioural norms
needed inside the organization (Deshpande & Webster, 1989).
To operationalize SCO and make it a more tangible formulation of
effective strategies to manage supply chains, Esper et al. (2010) clas-
sified SCO into four structural key elements: organizational design,
human resources, information technology, and organizational mea-
surement. The organisational design element is the assessment of
how to communicate, divide the workload, and coordinate and con-
trol the workflow to achieve the goals of the supply chain and of the
company. This is particularly important because tighter integration is
essential in SCM, and effective process coordination depends on it
(Mollenkopf et al., 2000). The human resource element requires hav-
ing the right people in the organization with the relevant skillsets.
Factors impacting supply chain activities and process implementa-
tion often come from outside the actual supply chain. It is, therefore,
highly important to have a staff who possess a fully rounded view of
the company’s decisions and goals and can transform them into effi-
cient activities and processes in the supply chain. In the information
technology element, factors to consider include information sharing
and using systems for planning, replenishment, and ordering. Having
a seamless flow of information is a well-understood and pervasive
means of improving decision making in the supply chain. The right
performance measurements and measuring systems constitute the
fourth element, organizational measurement. Measurement systems
enable fact-based decision making, but they also work as the means
that management can deploy to direct company focus and create
change.
Esper et al. (2010) further extended the notion of SCO to place it
firmly between the firm’s supply chain strategy and its structural
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Journal of Innovation & Knowledge 8 (2023) 100420
support for managing supply chains. An understanding of fit or level
of alignment is a central notion that members of organizations must
grasp in endeavouring to align strategies in pursuit of common goals
(Defee & Stank, 2009). When supply chain members fail to pull in the
same direction, competitive advantage cannot be achieved. Align-
ment is closely tied to effectiveness in strategic SCM (Ketchen & Hult,
2007) and is defined by Lee (2004) as consistency in the interests of
all participants in the supply chain. Many firms fail to achieve their
targets mainly due to an inability to agree and develop consistent
strategies, joint processes, and plans that cross firms and business
functions.
Returns management strategy alignment
In this section, we present a conceptual framework to guide our
research on developing effective returns management strategies. The
framework (Fig. 1) captures the managerial issues associated with
designing an effective returns management strategy for e-retailers.
The framework proposes that effective returns management strate-
gies are concerned with achieving a level of alignment, or “fit”,
between the business goal, the return process, and the return policy.
Returns management has held a strategic connotation since its
origin in scholarly research. As early as 2002, Rogers et al. (2002, p. 6)
stated: “A firm’s returns management capabilities can be used strate-
gically to enhance the overall performance of the company”. More
recent research has attempted to study returns management from a
strategic perspective with an impact on overall company perfor-
mance. Russo et al. (2018) identified combinations of return practices
that constitute customer satisfaction and, thereby, support overall
business goals. Moreover, they presented options where customer
satisfaction was high, even though high return rates were equally
high. Ro€ llecke et al. (2018) distinguished three broad risks and gain-
sharing practices in returns management programs: firms take most
of the return costs and focus on the long-term customer lifetime
value; share and balance the price with the customer; and shift the
price towards the customer. They argued that an aligned strategy −
where the returns management strategy fully supports the overall
business strategy − drives the organization to continue improvement
regarding returns management. Therefore, it is a key lever in devel-
oping an effective returns management strategy. In line with previ-
ous research, we put forward the following proposition:
RP1: Firms establishing effective strategies to manage returns need to
achieve a level of alignment between returns management and
the overall business goal.
Lack of alignment between functions,such as marketing and oper-
ations, is seen as the underlying reason why firms do not achieve
their strategic objectives (Berry et al., 1999). Here, alignment is
defined as the ability to jointly develop consistent strategies, whilst
Calantone et al. (2002) referred to alignment as cross-functional har-
mony. Mollenkopf et al. (2007) showed that the returns management
process is genuinely cross-functional and that firms with higher lev-
els of functional integration were more adaptive and proactive in
effectively managing returns. In a B2B context, Mollenkopf et al.
(2010) went on to further identify alignment of those functions as a
requisite to create value in the returns management process − cor-
rectly aligned returns management can utilize operational capabili-
ties and proactively respond to marketing and the overall business
goals of generating sales. Accordingly, Rogers and Tibben-Lembke
(1999) and Rogers et al. (2002) emphasized the importance of first
agreeing on goals and strategy before developing a coordinated
returns management process. However, Hjort et al. (2019) found that
e-retailers do not have clear goals and strategies when establishing
their return processes, and they argued that this is the product of dis-
jointed policies and practices. Based on the paradoxical fact that the
S. Karlsson, P. Oghazi, D. Hellstrom et al.
Fig. 1. Framework of returns management strategy alignment.
return policy (a powerful marketing instrument) is a strategic driver
that generates sales and revenue whilst the return process (opera-
tions intensive) is more readily associated with costs, it is reasonable
to expect e-retailers to face challenges in aligning these two in a con-
sistent strategy pulling in the same direction. Based on the discussion
above, we put forward the following proposition:
RP2: Firms establishing effective strategies to manage returns need to
achieve a level of alignment between return policy and process.
Methodology
In our research, we employed a confirmatory case study approach
− that is to say, we used primarily case studies to test the theory
under consideration rather than to develop one. Every confirmatory
case study must rest on a priori theory-based hypotheses or frame-
works that drive the research (Barratt et al., 2011; Voss et al., 2002).
Unlike correlational hypotheses found in surveys, case study hypoth-
eses are suited to positing the existence of a phenomenon, or the
presence or absence of a phenomenon under certain conditions
(Johnston et al., 1999). Our research aimed to assess a returns man-
agement strategy alignment framework in an online and omnichan-
nel retail context. To shed light on this issue, we found case research
to be particularly useful since returns management strategies are
emerging as contemporary empirical phenomena that cannot be
readily quantified. Furthermore, case research is appropriate because
the phenomenon of interest cannot be studied outside its natural set-
ting − that is, its rich context (McCutcheon & Meredith, 1993).
Case study design and selection
A multiple case study research design was adopted, comprising
six retail companies. A combination of purposive and convenience
sampling was used in selecting the cases. The retailers were chosen
purposively based principally on their status as channel leader ensur-
ing the integration of customer experience strategies in the supply
chain. Moreover, the retailers contended that returns management is
important, regarding it as a strategic source of value. The retailers
were also selected as heterogeneous cases to provide contrasting
4
Journal of Innovation & Knowledge 8 (2023) 100420
situations − operational setups, return policy leniency, return rates,
and SCO all served to enhance the external validity of the findings
(Yin, 2014). Moreover, the cases were selected based on data access
and availability. All the companies have head offices in Sweden. They
agreed to share data and experience openly, and they were willing to
participate in interview sessions on returns management strategies.
Business volume of the case companies ranges from 150 million for a
channel leader with turnover of 250 billion SÉK with a share of online
revenue ranging from 15% to 100%. Three case companies operate an
omnichannel business model and three case company a direct-to-
consumer internet retailing business model.
The overall rationale for using the multiple case study design and
selection was the potential of the cases included to provide revela-
tory evidence of the phenomenon under study (Yin, 2014).
Data collection and analysis
The primary data were collected through a series of interviews.
This offered appropriate media for gaining insights into the chal-
lenges and experiences encountered in setting goals and strategies
for the design of returns management programs. In addition, docu-
mentation and direct observations through field and site visits (ware-
houses, headquarters, websites, etc.) were used to complement the
richness obtained from the interviews. Studying the return policy fac-
ing customers on each internet retailer’s website and matching it
against activities found in the warehouse processes from site visits
revealed misalignments. Internal documentation for customer ser-
vice instructions gave valuable input communication flow and areas
of misalignment when managing returns. In total, 15 key manage-
ment staff involved in product returns were interviewed. Respond-
ents were selected through open dialogue with each retailer,
resulting in a variation of respondents in each case, often depending
on the size of the company. The interview guide contained three sec-
tions covering return policy, return process, and company goals and
strategy, with open-ended questions in which respondents were
asked to reflect critically on company practices and their experiences.
This provided opportunities for respondents to describe their every-
day interactions and challenges in managing product returns. The
interviews, all face-to-face, lasted between 92 and 125 min. They
were recorded, transcribed, and validated by the respondents. The
S. Karlsson, P. Oghazi, D. Hellstrom et al.
transcribed material consisted of 53 pages that was open coded using
NVivo 12. All transcribed material was uploaded to one place with
easy access, enabling tracking of the progress of the coding with com-
ments easily inserted. Nvivo12 is a multiple-user software allowing
co-authors to annotate coding and offer comments. By identifying
respondents’ answers and creating nodes, the software supports a
systematic approach, with insight and replicability ensuring reliable
results. The coded material in each node was categorized into a set of
misalignments. The misalignments were reviewed and discussed
amongst all investigators. The main investigator performed the initial
coding, and discussions with the co-investigators took place continu-
ously during the entire process through reflective feedback from
each investigator. An overview of the characteristics of the compa-
nies and respondents is presented in Table 1.
Results
The analysis of the empirical data provided several insights into
how the investigated retailers formulated their returns management
strategies. Even though the retailers view returns management as a
strategic source of value, our case evidence indicates that retailers
have adopted a somewhat ad hoc approach to their returns manage-
ment process rather than being guided by clear strategic thinking. As
the global supply chain manager for the fast-fashion retailer
explained: “We don’t have a return strategy. We see returns as a nec-
essary evil of doing business.” Moreover, the manager asserted: “The
whole return process is just one big compromise.” The absence of a
coherent and comprehensive strategy in managing product returns is
evident in all case companies. The lack of clear strategic goals sug-
gests that the retailers have not yet fully understood the strategic
implications of the returns management process.
Another pattern found across all the retailers was the challenge of
agreeing and making holistic trade-off decisions. It can be argued
that an effective formulation of returns strategies requires the man-
agement team to consider all the components involved in combina-
tion and not in isolation. The supply chain manager at the Nordic
network operator exemplified this point: “The sales manager decides
the return policy as part of our customer offer; the supply chain just has
to follow.” The outcome is that returns management, in the context of
retailing, must seek to align a set of components, such as return pro-
cess activities, return policy aspects, and overall business goals, into a
coherent process.
The research results suggest that there is a set of misalignments
that affect the level of fit between the returns management compo-
nents involved: return process, return policy, and which business
goal is impacted by each misalignment. The structured discussions
Table 1
Overview of case companies and respondents.
Type of retail Product category Supply chain focus
European online fast fashion High fashion Fast
Global fast fashion High fashion Efficient
European online street fashion Street fashion Efficient
Tailor-made online apparel Custom apparel Custom configured
Nordic network operator Phones and network Flexible
Custom-made online jewellery Jewellery Agile
5
Journal of Innovation & Knowledge 8 (2023) 100420
with senior managers provided insights into seven misalignments
that inhibit the organisations from developing effective returns man-
agement strategies. Each misalignment is presented in Table 2 and is
described in the sub-sections that follow with examples from the
case companies. To assist supply chain managers in developing strat-
egies for managing product returns, the key learning points are clas-
sified into the four structural elements of SCO in the discussion
section.
Lenient return policy and reduced return rate
Each of the six case companies is struggling to harmonise a lenient
return policy with its effect on the return rate and overall business
goals. All organisations prioritised lenient return policies to boost
sales and a hassle-free return process experience for the customers,
such as pre-printed return documents accompanying every order,
and free-of-charge returns if your order is above a certain amount.
Policies presented in recent research are effective levers in influenc-
ing purchase intentions (Abdulla et al., 2022), shaping the magnitude
of returns and exchanges and impacting the company’s business
goals. Thus, there is a need to balance return policy effects on sales
with the return rate.
The misalignment between a lenient return policy and a reduced
return rate has different characteristics from company to company in
our case study. For instance, the supply chain manager of the global
fashion retailer explains that their push model, which advises their
customers to buy 7 to 8 items of various sizes and colours in every
order and “try at home”, inevitably drives high return rates. Regard-
less, the supply chain manager concluded: “Often, we see that custom-
ers who do a lot of returning are good customers.” Paradoxically, the
same case company strives to be environmentally sustainable, but it
also recognizes the conflict between increased transportation and
environmental sustainability. The customers notice this paradox and
are critical. This is an apparent misalignment between the company’s
return policy and its business goal of being environmentally sustain-
able.
The CEO of the custom-made online jewellery company aims for
zero returns. Its average selling price is very high and individualized
products result in high return and redisposition costs. Nevertheless,
the company applies a lenient return policy to maintain its service to
customers. Consequently, there is a constant struggle to try to square
its return policy with the overall business goal. At the other extreme,
the supply chain manager for the Nordic mobile operator explains its
(unusual) ambition of 100% returns to ensure full ownership of the
total supply chain, from manufacturing through sales and consumer
usage to disposal and reuse of parts and components. This is a circular
Company scope Respondent
Internet retailer, brand owner - CEO
- Marketing mgr.
- Logistic mgr.
- Returns specialist
Omnichannel retailer, brand owner - Global supply chain mgr.
Internet retailer, brand owner - CEO
- COO
- Supply chain mgr.
Internet retailer, manufacturer, brand owner - CEO
- Marketing mgr.
Network operator, omnichannel retailer - Supply chain mgr.
- Customer service mgr.
- Project mgr.
Internet retailer, brand owner - CEO
- COO
S. Karlsson, P. Oghazi, D. Hellstrom et al. Journal of Innovation & Knowledge 8 (2023) 100420

Table 2
Seven misalignments in returns management.

Misalignment Description Business goal impact

1. Lenient policy and reduced return rate
1. Disarrayed return timeframe and demand variation
2. Incoherent conditional requirements and
process execution
A lenient policy drives sales but, inevitably, also the returns Sustainability Profitability
rate.
Allowing a long time for returns prevents bringing back sea- Customer experience Cost efficiency
sonable items into the supply chain.
A lack of process compatibility for returns that fail to meet Cost efficiency Customer experience
communicated conditional requirements.

3. Incoherent customer service guidelines
4. Insufficient information system resources
5. Insufficient data-driven decision-making capability
6. Incoherence in multichannel and omnichannel
Vague instructions and the burden of returns decisions rests Customer experience Cost efficiency
on the customer service department alone.
Analogue and manual systems prevent the efficient collection Profitability Cost efficiency
of data.
Lack of ability to take advantage of return data to make well- Organizational design Cost efficiency
informed decisions.
Treating returns differently across channels leads to an inho- Employee experience Customer experience
mogeneous customer experience and an ad-hoc return pro-
cess design.

ambition, albeit one that has not yet been fully deployed by the com-
pany. Indeed, having such a lenient return policy does harmonize
with its overall ambition, yet the company is struggling to formulate
a policy that matches its business intensions.
This misalignment is further confirmed by the CEO of the
European online street fashion company. He points to a lack of
harmony in that marketing and operations do not join forces to
balance policy and company goals. Evidence from the interviews
indicates that aligning leniency with its reduced return rate pol-
icy in pursuit of the company’s overall business goal is vital.
Whereas the competitive landscape often demands lenient return
policies, its implication for business goals poses a trade-off situa-
tion for companies.
Disarrayed return timeframe and demand variation
Offering a wide timeframe for returns, which allows customers
to delay the process, does not sit well with products that have a lim-
ited sales window. Variation in demand in the case companies
comes from, seasonal variation, sales campaigns, and new product
launches, amongst others. Higher or lower demand from customers
is derived from company activities and market specifics. This mis-
alignment was particularly evident in three of the case companies.
For these companies, an expansive timeframe for returns is seen as
a competitive advantage and yet, no real effort was expended on
analysing optimal time. None of the case companies adjusted the
return time for products that needed fast re-entry into the supply
chain, such as seasonal products. The global supply chain manager
of the fast-fashion company stated: “We have applied 100 days return
time by looking at what the competition does, but we need the products
back faster.” He claimed that: “The most expensive for us is an unsold
item at the regular price”, suggesting that managing returns quickly
impacts overall profitability.
The COO of the European online street fashion company explained
that they have come to acknowledge the inconsistency and, in order
to overcome the mismatch, actions have been taken to achieve a
speedier return, such as a faster refund if the products are returned
before the stipulated time. Furthermore, the company has launched
free returns if the returned item is exchanged for a replacement
product, in the belief that this will drive down customer return time.
Although this is applied to the full range of products, no differentia-
tion is made for items with varying demands. The jewellery company
has managed to strike a balance by offering fast processing of returns
for a fee of up to 10% of the purchase price. Despite its relatively high
cost, customers often used this service. This has led the company to
believe that charging for return services is possible so long as it adds
value for customers.
6
Incoherent conditional requirements and process execution
All case companies communicated specific requirements concern-
ing the condition of the product before they will accept a return, such
as an unbroken box and an intact price tag. Yet, they all accept
returns that fail to meet these requirements. In other words, there is
a discrepancy between what the organizations communicate and
what they do. Demanding specific conditions for returned items
exerts pressure on both sides of the process − the customer’s endeav-
our to return and the company’s execution of the return process. For
the company, this can mean gatekeeping decisions, the inspection
process, and the subsequent operational steps needed for the reverse
flow. Thus, there is a surprising discrepancy between the return con-
ditions that are communicated and those that are applied. This gener-
ates a lack of processing compatibility for the items that fail to meet
those requirements.
According to the Nordic mobile operator, the product must be in
its original box. However, the supply chain manager explained that
the company had moved away from demanding unbroken parcels
many years ago because customers objected. The company accepts
returns even if boxes are torn and unusable, requiring extra work at
the recovery centre. In a similar way, the supply chain manager at
the global fast fashion retailer admitted that returns are accepted
even though the conditions stipulated are not met: “Even if a return is
six months old, we still accept it. It should be hassle-free for the cus-
tomer.” The jewellery company’s CEO stated: “All returns have to be in
mint condition.” This resonates with the price tag of their products.
Such high requirements force the company to operate, to a large
extent, an individualized return process for each customer. This is
time-consuming, but it isa trade-off for the retailer that has been
thought through. Most respondents argue for information technol-
ogy, which enables early gatekeeping, as a prerequisite for adjusting
the process to fully match the actual condition of items being
returned. Surprisingly, none of the respondents mentioned changing
the conditions or applying existing ones.
Incoherent customer service guidelines
In all case companies, the heart of returns handling is the cus-
tomer service department. Its instructions are often broad and vague
with a core message such as “solve the problem with returns”. The
highly generalized instructions that exist often lead to idiosyncratic
decisions that do not always correspond with what customers expect
or need; nor do they necessarily accord with the return process
intended. This situation undermines effective returns management.
The global fashion retailer admitted that all returns go through its
customer service department, and it accepts returns even if they are
S. Karlsson, P. Oghazi, D. Hellstrom et al.
six months old regardless of the reason given. This is considerably
more lenient than what is communicated to customers when pur-
chasing. The marketing manager of the European online fashion
retailer stated that an unhappy customer has potentially a higher
negative impact than the cost of resolving a return issue. Therefore, it
delegates the return decision to customer service. Interestingly, none
of the case companies measure the effect or cost of these instructions
on the customer service staff. It makes no differentiation between an
uncomplicated product exchange and a return due to customer dis-
satisfaction with quality or service. This makes a well-informed
trade-off decision impossible.
The interviews show there is no interest in communicating the
company’s factual leniency because the contact between the cus-
tomer service department and customers gives room for manoeuvre.
To take a case in point, the CEO of the tailor-made internet retailer
marketing individualized fashion apparel directed the customer ser-
vice department to be more generous than the conditions stated in
customer communications. This was done to use the occasion for
negotiation and make disposal decisions when the returns were
approved: “We don’t want to have any physical returns. That should be
solved by customer service.” Customer service is clearly a focal point in
the return process, and business-relevant trade-off decisions are the
product of customer service action, misguided or otherwise.
Insufficient information system resources
All case companies share the view that communication with cus-
tomers over returns must be digitalized. Even though return data are
often collected by mail or printed forms, the quality and makeup of
the data do not result in helpful analytics. Effectively managing
returns is limited by inadequate information system resources.
The European street fashion retailer has come the furthest of the
case companies. It has a digital module in its sales system to collect
return data. However, communication with customers is still main-
tained through e-mail and telephone. The apparent purpose of digitaliz-
ing the return flow is to communicate with the customer before the
item is returned and to decide how, and in some cases, whether it
should be returned. The global fashion retailers stated that the cost of
handling returns sometimes exceeded the value of the product and,
thus, it would be cheaper for the customer to dispose of the item
instead of returning it. The lack of an information system to support
early dialogue with customers prohibits that trade-off decision. The cus-
tomer service manager from the Nordic network company claimed its
connected products should be able to generate better knowledge from
usage, thereby reducing return rates: “With all our connected products,
we should be able to avoid returns by knowing the reasons for returns bet-
ter.” The global fast fashion company described how it asked customers
to fill in printed forms. However, the data is not used or analysed
mainly because of time constraints in processing printed data material.
The tailor-made internet retailer has a custom-fit return process. This
means that the customer has mail contact with customer service who
requests information about the return claim for a fully flexible solution.
The marketing manager stated: “Nothing is more expensive than an
unhappy customer”. This shows that striking a balance in the return pro-
cess depends to a large extent on the accessibility of return data.
Insufficient data-driven decision-making capability
Another pattern found in all case companies concerns the analy-
sis of return data and its use in decision-making processes. Accord-
ing to the respondents, the actual data collected by the company
sales systems on returns is not analysed or used when managing
returns. Not using available return data in the decision-making pro-
cess impacts a company’s ability to develop an appropriate return
process and limits harmonization of the return process with the
overall business goal.
7
Journal of Innovation & Knowledge 8 (2023) 100420
Several respondents argued that the ability to measure and use
total return costs from the profit-and-loss account would help them
guide their efforts. The actual cost of returns is not measured sepa-
rately in any of the case companies; it is an element in supply chain
costs. This lack of transparency inhibits meaningful trade-off deci-
sions. In addition, fulfilment excellence is precluded by not consider-
ing what is being returned. The supply chain manager at the global
fashion retailer stated: “How can we plan our supply when 30%
40%
of the goods are coming the other way?”, claiming that the inability to
use the return data for sourcing and fulfilment decisions impacted SC
costs and, consequently, overall profitability. On the other hand, even
though the street fashion retailer is the only case company to gather
return data digitally, it does not analyse the data. They freely admit
that this is a lost opportunity, but they lack both the resources and
the capabilities to do so. In addition, the tailor-made retailer identi-
fied the need for return data when developing and launching new
products or categories but, as its data consists of e-mail correspon-
dence with customers, it is far too complicated to analyse. The CEO
acknowledged that return data would help to manage price points,
margins, and the return process.
Multichannel and omnichannel incoherence
Internet retailers’ evolving business models across channels pose
a challenge to effective returns management. The internet retailer
who expands into physical stores struggles with harmonizing con-
sumer returns across channels, as do the bricks and mortar retailers
who begin to digitalize their businesses. To succeed, it is necessary to
create a seamless experience across channels and communication
tools (Mostaghel et al., 2022; Palmie  et al., 2022; Grewal et al., 2017).
Three of the six case companies confirmed they apply the same
return process in physical stores as online, and they have yet to orga-
nize returns of online purchases to physical stores. Case companies
admit that it can be confusing for customers and staff to manage
returns in a physical store setting that were initially designed for
internet retailing The global fast fashion retailer claimed there are
almost no returns from sales generated in its physical stores. This has
resulted in a process mismatch when online sales, with their expo-
nential growth and different returns procedure, are returned to the
retailer’s physical stores. The street fashion retailer accepts returns
from orders made online to its physical stores, but it uses a manual
process. The supply chain manager stated: “No return process is devel-
oped yet, so cashiers handle the returns manually.” The company is
investigating new solutions, such as pick-up points for returns. They
foresee this as a natural part of the omnichannel return process.
The Nordic mobile operator with half of its business in stores and
half online has struggled to develop a coordinated approach for an
online business that also retains physical stores. But, as the supply
chain manager stated: “Call us. We will solve it!”. This opens up flexi-
bility in returns handling both online and offline. Today, it only
allows some items bought online to be returned in physical stores,
which can then be dispatched to the return point in a designated
warehouse. The three companies acknowledge shortcomings in being
unable to manage returns in a coordinated manner across sales chan-
nels, with staff experiencing difficulty in handling online orders
returned to physical outlets. This creates confusion in staff members
who may feel compelled to invent a return process at a moment’s
notice. It makes for a disparate customer experience and higher sup-
ply chain costs.
Discussion
Misalignment in returns management is a multi-faceted phenom-
enon that occurs as technology advances and as customer attitudes,
behaviours, and purchasing habits change as new practices emerge
and myriad other causes dynamically change organizations’
S. Karlsson, P. Oghazi, D. Hellstrom et al.
operating environment. There is no silver bullet that can overcome
the misalignments identified in this study of returns management.
Put more simply, a misalignment typically stems from several sys-
temic breakdowns resulting from poor coordination in whatever
form. Establishing and sustaining alignment in managing returns
requires focused action and ongoing attention from supply chain
managers. Respondents are generally aware that applying a holistic
approach when establishing returns management strategies is bene-
ficial but, equally, they are unaware of what prevents them from
making it a reality. This corroborates the results of Chen et al. (2019)
who recognized the importance of returns management as an essen-
tial step towards establishing effective strategies. Rather than chasing
silver bullets, supply chain managers need to acknowledge the return
process as a key business activity − as they do with the forward flow
(i.e., the source, make, and deliver process) − and adopt a holistic
view of managing returns in order to develop beneficial strategies.
Based on the results of this study, we suggest there are several learn-
ing points that can assist supply chain managers in developing effec-
tive strategies. The following sub-sections cover common managerial
themes and practices that span the previously described misalign-
ments. These learning points are categorized into the four strategic
elements of SCO outlined by Min et al. (2007). They support organisa-
tions that view supply chain management strategically.
Organizational design
Returns management needs to be a natural and integral part of
the organizational design. SC organizations need to move away from
focusing solely on return prevention and cost reduction. They should
apply a more customer-centric approach, offering a differentiated
service and actively working with functional integration, in which
returns are managed and not just prevented.
Towards a product and customer-centric approach
There is a scholarly argument for the revival of a consumer-centric
approach to supply-chain management, (Esper et al., 2020). Con-
sumer returns are no longer only a product-centric but also a cus-
tomer-centric puzzle, where customer service plays a central role in
handling the returns and dealing with the returnee (Baldauf et al.,
2021; Oghazi et al., 2021). The approach centring the return process
on products must focus on the individual customer by measuring rel-
evant data that covers the customer journey from purchasing to
returning. This is a journey involving interaction in a variety of chan-
nels over time leading to an expected increase in customer lifetime
value. While the aim of reducing returns to save costs has been domi-
nant amongst internet retailers, they must also consider the customer
experience concerning returns.
Combining service recovery and service offers
All returns are not complaints and, therefore, the old service
recovery approach is not applicable to the vast number of consumer
returns where the product is returned (and often re-sold) in
exchange for a new size. Customer service needs to make decisions
on separating returns on whether interaction with the returnee is
needed or not. If a customer orders more than one size of a product,
then it is easy to make a prognosis that a product will be returned. In
this case, there is no reason to interact with the returnee on service
recovery issues. All that is needed is a communication that a return
has been received and approved, and refunding is scheduled.
However, a customer using the returns process to register a com-
plaint for any reason should be treated differently. On this occasion,
the company’s reputation, the customer journey, and the lifetime
value-creation process are all involved and require a more inter-
ventionist approach. In online retailing, this is luckily not the most
common return reason, and so a more decentralized approach is
8
Journal of Innovation & Knowledge 8 (2023) 100420
appropriate, in which customer returns are brought to closure
simply.
Functional integration
For any given return reason, be it regret, exchange, or product
recall, the physical handling of the goods returned must have a
reverse flow with coordinated physical actions and often a monetary
process before closure. This means a workload covering different
functional areas within the organization and the SC. A customer-cen-
tric organisation will not benefit from taking the easy route where
the logistics function solves all returns in the same way using a
standard pipeline. Different return reasons need a differentiated
approach to reverse logistics. Managers need to understand the
boundaries and functional areas to correctly balance customer
demands on service and products.
The lack of internal integration witnessed in many organizations
often results in a poorly coordinated SC. Similarly, failing to incorpo-
rate returns in today’s business goals results in internal inefficiency
where poor control and increasing return costs are apparent. To
assert control, managers need to develop measures that connect poli-
cies and practice, in order to achieve the overall business goal. John-
ston and Mera (2002) found that excellent complaint management
systems require both centralized and decentralized approaches.
Complaints are similar to returns, or at least that part that refers to
service recovery. A centralized system would separate out returns
that relate to regrets from dissatisfied customers.
Information technology
Many firms see that there are inherent risks in doing the same
thing tomorrow as they did yesterday. Generally, they seek change to
bring competitiveness, improve profits, and enter new markets.
Much of this change requires information technology to underpin
this transformation. Whether it is digitization providing a better
online experience, transforming business with AI, or implementing
new technology, such as the Internet of things, 3D printing, and AR/
V, an essential transformation is from a “silo-based” organization to a
cross-functional process-driven supply chain that excels in managing
complex flows of information and decision making. However, it is
rarely used in the returns process.
Digitization of returns information
Integrating all necessary functional areas and SC partners begins
with an IT system that has been developed for the particular purpose
of returns. As explained above, different return reasons require a dif-
ferentiated approach to make the returns process effective. Managing
expressly the exchange of goods initiated by the returnee is likely to
be very different from a product recall, where the retailer controls
and initiates the recall. Similar logic will fit any other given return
reason, and this should not be handled by the customer service per-
sonnel individually. Using IT to connect back to the returnee allows
not only for proper gatekeeping and synchronization of the return
activities but also for using organisationally designed return decision
engines to execute diverse disposal decisions. Furthermore, real-time
information sharing within and across organizations facilitates
returns avoidance because of a better understanding of returns
reasons.
Organizational measurements
Once returns have become a part of the overall business in online
sales, organizations need measures that capture operational perfor-
mance and fit with strategic intent. Integration is key for an aligned
and effective process and, therefore, common goals and cross-func-
tional measures are fitting.
S. Karlsson, P. Oghazi, D. Hellstrom et al.
Managerial key performance indicators (KPIs)
As discussed above, measuring returns within an organization
begins with a proper returns information system. However, the
measurements must include costs, be service focused, and be able to
portray the fit between returns policy and process, as well as the
overall strategic intent. Adopting lenient return policies might fit cer-
tain products, customers, and markets depending on demand and
buying/returning patterns. However, with proper measurements and
a returns information system to support proper gatekeeping, manag-
ers can follow up on both efficiency and responsiveness. Further-
more, inconsistent goals prevent successful integration. Having
divergent objectives foster a silo mentality where managers take
decisions that run counter to other goals in the organization and that
suboptimize the business. Therefore, companies need to measure
returns and develop KPIs: for successful business development, profit
and loss analysis is needed to understand what activities carry which
financial implications.
Service offer and service recovery KPIs
To ensure efficiency measures that ensure that returns are han-
dled in accordance with the type of service, service recovery, or ser-
vice offering as explained in 5.1.2, both financial and non-financial
objectives need to be considered when defining KPIs. Measures that
focus on responsiveness to different types of returns as defined by
the reported customer reason code need to be developed. For exam-
ple, when customers express dissatisfaction, they may need interac-
tion with customer service (decentralized) to achieve proper closure
(Johnston & Mehra, 2002). To this end, the internet retailer will need
internal integration where the returnee, the product, its demand pat-
tern, and the financial and non-financial potential of value recovery
are recognized before making business decisions.
For the service offering, new KPIs are needed, reflecting sound and
relevant targets. For the service to provide value to customers, it
should focus on customer value-added attributes, such as speedy ser-
vice and fast cash refund. A short timeframe set as a KPI when replac-
ing a size change return or a maximum timeframe for money refund
to facilitate repurchase is desirable. Potential negative consequences
need a follow-up strategy to monitor and mitigate abusive behav-
iours. A customer-centric approach is required when developing ser-
vice KPIs.
Human resources
Returns management has evolved into an essential part of the
supply chain process of an internet retailer. Consequently, staff and
managers need to acquire the necessary set of skills. There is no
doubt that SC managers need a diverse group of skills to steer and
manage internal and external integrations (Esper et al., 2010) and
that supply chain professionals must acquire new knowledge
enabling them to make a positive impact on the development of
returns management (Chen et al., 2019). Furthermore, developing
both measures and systems to support the SCs is mandatory because
over 90% of all logistics activities take place outside direct supervision
(Bowersox et al., 2000). The manager skills that are needed to miti-
gate misalignments in returns management are a relatively new phe-
nomenon. They require not only logistics and SC skills but also
learning capabilities and transformational leadership styles to facili-
tate and embrace new logistical wonders and SC ideas (Esper et al.,
2010). Returns management is a cross-functional process in which
professionals from, for example, operations and marketing need to
work together and deploy common goals that support cross-func-
tional coordination. Focusing staff and management attention on the
benefits of a well-functioning return process should lead to more
educated decisions. Customer service often handles the return pro-
cess unsupervised but, as the central cog in returns management, it
needs to be aware of the cause and effect of returns decisions.
9
Journal of Innovation & Knowledge 8 (2023) 100420
Conclusion and future research
Despite increased scholarly attention, research focusing on the
strategy in returns management is scarce. This study embarked on
the task of shedding light on the formulation of returns management
strategies. Based on a theoretical framework and a series of case stud-
ies with a diverse set of retailers, we confirm the need to achieve a
level of alignment between returns management components and
the overall business goal in order to establish effective strategies.
Specifically, the research results provide insights into seven multi-
faceted misalignments that inhibit organizations from developing
adequate returns management strategies.
To overcome these misalignments and support supply chain man-
agers in developing effective strategies, we suggest several learning
points.
Research implications
Our results extend the previous research addressing strategies on
the returns management process (Rogers et al., 2002) by identifying
and characterizing misalignments between returns management
components. Our results complement and extend previous research
on strategizing returns management (e.g., Dapiran & Kam, 2017;
€ lleke et al., 2018). Our conceptualization of the
Hjort et al., 2019; Ro
components of returns management and its interrelation adds to the
literature and the role of alignment in returns management strategy
formation. It confirms and extends the research and the relevance of
alignment (Mollenkopf et al., 2010) when creating effective supply
chain strategies. Moreover, we draw on the SCO literature (e.g., Esper
et al., 2010) and extend the relatively limited research stream on SCO
into the area of returns management. The notion of SCO and its rele-
vance for strategy formation in returns management contribute to
the SCO literature. We contribute by providing a broad and rich
empirical study of strategy development in internet retailing, with
several practical implications emerging from our case study findings.
Managerial implications
The results indicate that internet retailing does not have a healthy
returns management strategy that is thought through. Rather, it is a
patchwork derived from policies and processes designed over time.
This is a material fact for managers to contemplate. An understanding
of the components in returns management that need to be consid-
ered can assist companies in their quest to establish adequate returns
management strategies. Our study supports the conception that pol-
icy and process are undoubtedly interlinked. Cross-functional coop-
eration is crucial when deciding the return policy. Equally, designing
the return process is a vital element in developing an effective
returns management strategy. The relationship of these components
to each other in a returns management context and the identified
misalignments can be used as a foundation to explore how to achieve
a higher level of alignment. Finally, the misalignments that run
counter to a general business goal can support managers in develop-
ing more coordinated strategies. A returns management strategy, or
the lack thereof, can impact company performance and reputation,
whether in numbers or customer promises.
Limitations and suggestions for further research
There are several limitations to the research. The case companies
were carefully selected based on their understanding of the importance
of the return process, but the sample size was limited as were industry
representatives. Although varied in geographical footprint, the case
companies were based in northern Europe. This means the results do
not represent a broader population encapsulating differences in operat-
ing environments, marketing constraints, organisational infrastructure,
S. Karlsson, P. Oghazi, D. Hellstrom et al. Journal of Innovation & Knowledge 8 (2023) 100420

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